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REALITY
CHECK UPDATE
Published Every Tuesday
and Friday |
| ARCHIVE:
APRIL
2000-MAY
2001 |
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Contributed by
Mitch Harris
President: Market
Trend Realities,
Editor: The Reality Check
Newsletter |
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June 12, 2001 |
| STOCKS |
| REALITY RATIO: +0.096
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Last Signal: 04/20/01, TRADING SELL
Dow: 10,579.85 OTC: 2163.18
The Reality Ratio turned down again from last week s "higher high" and remains relatively overbought and bearish for the immediate future. We are viewing the current bounce of the last few days as just that, with lower prices anticipated as we move toward the middle of June.
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TUESDAY June 12, 2001: Equity markets continued to pull back yesterday on more corporate earnings warnings, and a flight to bonds on the news that Japan s economy is slipping back into its grinding recession. As the semi-conductor group has lead the market s recovery, the companies within this group are also leading with the number of corporate earnings warnings, suggesting that while the recovery may be "just around the corner", its NOT just around the very next corner as so many have taken comfort in believing.
Equity markets appeared to be rolling over with the past few days of light selling. This has been our expectation and we think there s further to go as the market s set up the third leg of the rally, either within the ongoing bear market, or within the ongoing bull market. If this sounds like double talk, it isn t. We see the potential for the Dow to make one last gasp push to a new high, while we do NOT see the same potential for the broad NY markets, and even less for the OTC Composite, making both of the above statements correct, provided that are analysis is correct. Even if the Dow indeed makes a new high, we will only see it as a very quick, nominal and unsustainable last gasp, as many price and momentum divergences set up an even larger scale decline later!
In the very near term, continued light selling may be setting the stage for the seasonal summer rally, as hope continues to spring eternal for the perennial bulls. This view would be put in jeopardy in the event that selling volume picks up as the Dow breaks much below support near the 10,448, 4/24 low. We don t expect this in the current downturn, but it is why we place trading parameters on our work. Stiff longer term Dow resistance remains at the 5/22, 11,350 high to the 4/00, 11,425 top. A push above this would confirm the beginning of the next leg of advance and greatly increase the odds that the 11,750 high will be tested. Our 10,800 initial downside objective was being approached again yesterday. Our downside target remains between support at 10,800 and the 5/4, 10673.22 low. Any decline below 10,835 would satisfy the minimum "c" wave requirement for the correction to end. A CLOSE below 10,673 would indicate that an even weaker market was developing, with critical short term support near the 4/24, 10,448 low. Initial resistance is at 11,000, and then at 11,140. It will currently take a close above the 11,350 high to renew the rally. For the OTC Composite, the bearish "High Pole" would be resolved with a push above 2340, where the sell alert it offers would be confirmed with any drop below support at 2060.
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TREASURIES
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Treasury yields have remained firm pushing toward Monday s 5.627% low after Japan announced that their economy contracted by .2% in the first quarter, back into recessionary levels. This was enough to bring money back toward the comfort of Treasuries, and remains within what we expect is minor wave "2" of the bear market rally. The market seems concerned that the Fed s aggressive rate cutting orgy is irresponsible and will lead to rising price pressures and higher inflation. Even some of the Fed s most optimistic mouthpieces seem confused by their own statements. For instance, San Francisco Fed Pres., Robert Parry stated, "the lethargic US economy would likely speed up by year s end, but faced risks of further weakness in consumer and business spending, also cautioning that "it may take until 2002 before the economy feels the full force of expansive policies." This doesn t sound like a high degree of conviction to us, and "jawboning" to the media is not going to stimulate the consumer. Without them business investment and spending will fall short of pulling the economy out of its slump. Indeed, it is this type of hallowed rhetoric that we are just beginning to see come to an end in Japan as after 11 years of "no rebound", they are finally just beginning to face the reality of their continued challenge. Perhaps their contracting GDP is a final wake-up call. Even if it is still premature, they are likely much closer to the beginning of a TRUE recovery than the US, as they are finally seeking real, tough solutions to their mounds of "non-performing" assets, while In the US, we are not even near the point of recognizing that greater secular and structural problems exist than what is currently being addressed. Our leaders are not yet close to this recognition so shortly after our own economic boom has ended.
The 5.627% low is next resistance and a push below this will remain well within our parameters, still within minor wave "c of 2", of the larger primary bear market. Next lower resistance is near 5.56% (the Fibonnacci 50% retracement level), 5.50 - .45% and then at the original 5.40% breakout point. We think that this counter trend rally may now be providing the "selling" opportunity for the bears that we had been expecting. We may be a bit early with this assessment as we often are based on our perception of the risk/reward, but we do not think we ll be wrong.
We remain confident that the yield is ultimately heading (much) higher, within larger degree wave (3) that began from the 4/22, 5.217% low. We do not think the yield should drop back below the 5.40% breakout point. A push above 5.90% would confirm that the bear market has resumed, making higher support at the 5.975-6.025% the next upside target. Short term support is down to 5.74% and near 5.85%. Contrary to the belief of the majority, we think it likely that the yield is ultimately headed ABOVE the 6.75%, 1/00 high. |
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GOLD
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Gold & the XAU continue to act poorly, with gold plunging over $5.00 yesterday erasing most of last Friday's $7.20 gain, posting an inside day by trading within Friday s broader range. Traders sold on the Dollar s push to new highs and the very bearish Commitment of Traders report that showed a growing short position among the smart money commercials. A close above Friday's 275.50 high is needed to renew the rally.
Both markets are becoming very oversold in the near term, and should be capable of an attempt to gain back some of their recent losses, but we continue to see a very high probability that further downside remains likely. The minor wave "ii" bounce that we ve been expecting toward resistance near 63-4 is still possible, and perhaps even getting late. Again, next strong support is near the 56 level that we warned would be a very bearish "High Pole at the Bearish Resistance Line" (HPBr) on our longer term 2X6 P&F Chart. So far while struggling, it has (barely) managed to hold above this level. The XAU closed at 57.13 yesterday. A drop to 56 or lower would significantly raise the odds for our more bearish potential, and to us has already rekindled the prospects that a final 5th minor wave of decline is underway. Lower support is at the 2/14, 45.64 low and then at the even more critical 7/14/00, 41.61 low. Short term resistance is again near 59, then 63-4. The silver lining here is that if our longer term analysis is correct, we will ultimately clear the way for smooth sailing to higher (and potentially much higher) prices!
In contrast to the poor longer term risk/reward we see for bonds, we see the exact opposite here! Not even a new low will change this!
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PORTFOLIO CHANGES |
| Tuesday, June
11, 2001: 6/11: Our Fannie Mae (FNM) short hit the 85 stop and was covered for a net break even; Autozone (AZO) 33.10 (+43.91%), after it had a Buying Climax (BC) at 34 last week, and has pushed into major resistance. [Part of our offensive is to have a good defense! That means limiting losses and protecting gains]! |
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at
(513) 421-8737,
Fax: (513) 421-8733 , or by email at: mtr@fuse.net .
MTR also publishes a monthly investment newsletter called "Reality Check", which offers technical commentary on the stock & bond markets, the Dollar Index, gold & gold stocks (XAU), Treasury yields, utilities, investor sentiment, and Federal Reserve policy. It also offers stock trading recommendations each month with price targets, stop loss points and insider activity. There are 4 trading portfolios, including a short selling account (we are very proud that our short sale recommendations have averaged 12.5% "compounded" during the roaring bull market of the last 5 years). Short term market commentaries are updated on Tuesday and Friday mornings, along with portfolio changes on this web page. They are also emailed for free to anyone who provides us with their email address. The regular subscription rate is $200 (US) per year. Samples are available upon request. MTR will be happy to send information on any of the above mentioned services. Please email us your home or business address along with your daytime phone number and specify your interest(s). |
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